There is little doubt that expat investment planning has become more important over the last three years, as global crises seem to follow hot on each other’s heels.
At Chase Buchanan we work closely with expat clients across Europe, America and Canada. We are conscious that many foreign nationals living overseas are concerned about the news they see in the media. For example, the announcement of a seventh consecutive interest rate hike in the UK will undoubtedly pose questions about the security of assets held in Britain, as will comments that indicate the country may already be in recession.
This scenario applies in numerous jurisdictions, but the key is always to avoid making knee-jerk reactions or taking every headline at face value, and to look to future forecasts and economic indicators to assess the realistic impacts.
The Contrast Between Inflation and Recession
It’s important to quantify these terms since they can be used incorrectly.
- Inflation refers to increases in product prices over time and is an ongoing situation measured against the Consumer Price Index.
- Recession means that economic activity has generally dropped due to a reduced GDP for two consecutive quarters but occurs only in specific conditions.
The positive is that recession typically lasts an average of just under ten months, based on seven recessionary cycles within the last 70 years. So, the outcomes are likely minimal for an investment plan based on retiring in several years. That isn’t to say the effects of inflation on interest rates and potential recession won’t impact your investment decisions, but that you should make any changes to an investment portfolio with a full understanding of how the economic climate is likely to adjust.
For further reading, please review our previous guide about What Inflation and Interest Rates Mean for Market Volatility in 2022.
How to Adapt an Expat Investment Strategy
In some cases, no portfolio adaptations are necessary.
If your expat investment strategy is based on a low-risk exposure level and has a good spread of diversified assets that offer tax efficiencies, we may advise that the best course of action is to leave your portfolio as-is but continue to monitor markets for unfavourable fluctuations. In others, particularly if you have higher-risk products, a restructure may be advisable to shift exposed wealth to safer investments that are less susceptible to the effects of inflation or, indeed, a shorter-term recession.
The focus of a long-term investment plan is to manage short-term uncertainty to avoid the trap of buying at a high market price and ending up with an asset that will erode your overall wealth.
Stock markets perform primarily based on investor confidence, market cycles and forecasts. Although we naturally associate inflation with poor performance, that isn’t necessarily correct – grasping overall market trends can help you make informed decisions where needed.
One option in recessionary climates is to ensure your investment plan takes a defensive position, usually where you intend to retire relatively soon and wish to be as risk-averse as possible.
Fixed-income investments may be an option or an element of your investment plan. Still, many static return products offer less advantageous returns, which may mean you miss out on gains when the markets rally.
Spreading risk is essential in uncertain times because mixtures of shares, bonds and other assets safeguard your portfolio, as does distributing your investments across global markets.
Another option may be to take a buy-and-hold stance, which is more relevant to passively managed investments but could be applicable if your investment plans are based on longer-term investment products, which are unlikely to fluctuate significantly. Buy-and-hold simply means avoiding making sudden decisions or selling an investment asset at a below-par price.
Rising living costs and interest rates inevitably cause market volatility, so the right approach is often to focus on your long-term goals, reassess whether investment plans are still expected to meet them, and wait out bumps in the road.
Analyse Potential Investments Carefully
Gloomy headlines might mean you perceive there are no investment opportunities available – the opposite is often true. But, if you decide to invest in shares, your chosen organisation must have a strong, established business model and balance sheet, which businesses need to withstand difficult climates.
Some sectors are relatively insensitive to inflation or recession and remain in demand regardless of broader economic activities.
A recession can also be a period where some investments are available at depressed prices, which could be a chance to diversify an existing portfolio with lower-priced stocks. For example, funds often select what they believe to be undervalued stocks, which stand a good chance of becoming very successful in the years ahead.
Advice for Expat Investment Planning in a Recession
The overarching theme with any sound advice during tricky trading conditions is never to panic, make hasty decisions, or allow headlines to take precedence over a well-thought-out, carefully compiled investment plan. Whether the majority of your assets are tied up in long-term property investments, or you have a range of stock assets and offshore funds, a recession may be an opportunity rather than a threat to your wealth.
No one investment product is guaranteed to provide specific returns, nor are there many investments that don’t move upward and down – but if you are looking for greater surety, an alternative such as tracker funds may be of interest.
If your investments provide returns above inflation, you are already outperforming the market, and a gradual rebound is often more significant than a short-term slump when economies are poised for greater spending. As always, the best approach if you are concerned about your investment plan, economic scenarios in your country of residence or investment jurisdiction, or whether inflation has affected your wealth, please contact Chase Buchanan.
Our experienced expat investment management advisers will be happy to discuss the specific funds and assets you hold and determine the optimal actions to protect your portfolio during and after recession and periods of inflation.